The Hidden Financial Dangers of Backing Your Child’s Mortgage in Toronto
Like many parents, Laura Garner wants to help her daughter buy a home, one for around $400,000 in St. Catharines, Ont. A mortgage broker suggested she co-sign a mortgage for one per cent of the home’s value to support her daughter’s eligibility for a mortgage.
A mortgage typically requires a co-signer when the applicant would not meet the eligibility requirements to qualify on their own.
“With them saying that we would just be one per cent owner, I didn’t feel that there was too much risk involved,” she says.
Garner’s daughter was pre-approved, with her mother as a co-signer, for what would be her second home, but nothing is finalized. Garner, 71, and her husband already own their own home, and she wonders about the risks of being tied to a second property at this stage of her life.
It’s a dilemma many Canadian parents are facing: a recent survey from the Bank of Canada shows that 11 per cent of mortgages issued to first time homebuyers in 2025 were co-signed with a parent — a dramatic increase from four per cent in 2004. In Toronto, the increase has been more drastic, to 13.8 per cent from 4.1 per cent.
“Co-signing a mortgage can be a meaningful way to help your child get into the housing market,” says Leah Zlatkin, licensed mortgage broker and LowestRates.ca expert. “Parents should know, though, that co-signing is not just a signature on paper.”
Co-signers put their own credit at risk, and depending on the situation, there could be tax consequences too.
Should parents co-sign a mortgage or guarantee it?
If your kid finds a home and the bank says the numbers don’t work without you, Brian Orlando, CPA and financial educator at Calm Money Coach, says you could either be a co-signer or a guarantor. The difference is important. A guarantor is only on the mortgage, not the home’s title, and so does not own the property. A co-signer is on both the mortgage and the title, making them part owner.
Tax implications start if co-sign the mortgage and your name goes on the title as an owner. In that case, you own a slice of the home and its growth is taxable. “The bill arrives when the home sells, or on your estate if you still own it at death,” Orlando says. That doesn’t apply to a guarantor, since guarantors don’t go on title as part owner.
However, if the borrower defaults on their mortgage, the guarantor is liable and the lender will pursue them for the full debt owed.
So how do you choose whether to co-sign or guarantee? Orlando says that depends on whether your child needs your income to qualify, or just your name behind the loan.
If they need the income, the lender will likely want to put you on title as a co-signer. If they just need a name behind the loan as a guarantor, your name stays off title and there are no tax implications.
In Garner’s case, Orlando says, she would need to be on title as a co-signer for her daughter to use her income toward a mortgage approval.
So while Garner would only own one per cent of the home, she would still be on the hook for the full mortgage if something goes wrong. “At one per cent, she owns almost none of the house and is still responsible for all of the mortgage,” Orlando explains.
What does co-signing mean for parents’ taxes?
If a parent does decide to go on title, Orlando suggests taking on the smallest share the lender allows as a tenant in common (not as a joint tenant, which typically comes with a right of survivorship where ownership of the property is transferred to the co-signer if the owner dies).
Keep in mind that if your child is buying their first home and you’re on the title, their potential tax rebates will shrink. In Ontario, first-time home buyers can get a maximum land transfer tax rebate of $4,000, and in Toronto first-time buyers can get a municipal land transfer tax rebate of up to $4,475. Combined, that’s a savings of up to $8,475. However, the amount of the rebates are pro-rated to the first-timer buyer’s share of the home. A 50/50 split cuts it in half, while a one per cent parent share barely touches it.
“Less ownership means a smaller tax bill and a cleaner exit later,” Orlando says.
Co-signing a mortgage puts parents’ credit at risk
It’s crucial for parents to understand that co-signing a mortgage has implications for their own credit, which can be very risky.
From the lender’s perspective, Zlatkin says, you are taking on responsibility for that mortgage; once you co-sign, the debt is also attached to your name and appears on your credit report.
Even if your child is the one covering the mortgage each month, Zlatkin explains that lenders will still factor the debt into your application if you want to borrow in the future. That can affect your debt service ratios and reduce how much you qualify for if you want to refinance your own home, switch lenders at renewal, access a home equity line of credit, buy another property or take on other financing later.
If your child misses a payment or is late, that can have a negative effect on your credit score as the co-signer. If they default on the mortgage, the debt becomes your responsibility.
Garner says she’s discussed the risks with her daughter and her partner. “We’ve gone over their finances repeatedly just to make sure that they’ll be able to carry the payments,” she says. Still, she adds, it’s stressful to consider that she could be taking a risk at this point in her life. “We’re comfortable, but we want to be able to leave something when we’re gone for our children and grandchildren.”
“Parents sometimes go into this thinking, ‘My child is responsible, they’ll make the payments,’ and that might be true, but life can change,” Zlatkin says. Job loss, rising costs or an emergency can all make it harder to keep up. “As a co-signer, you need to be comfortable with the idea that you might need to step in if something goes wrong.” Consider whether you’ll have the funds to pay off the mortgage in a worst-case scenario.
Parents should think hard about their capacity to help, especially if they have more than one child who might need support in the future. Co-signing for one child can affect your ability to help another in the same way later on, because there is only so much debt one person can take on. That can create financial stress and, in some families, tension between siblings.
Zlatkin suggests parents speak to an independent mortgage broker before signing anything final. “A broker can look at the full financial picture and explain how co-signing or being added to title could affect future borrowing, renewal options and overall financial flexibility,” she says.
This article was first reported by The Star
